ET fees: the wrong plan, in the wrong hands

Back in January, I noted on this blog that employment judges had yet to use the power, granted to them nine months previously under section 16 of the Enterprise & Regulatory Reform Act 2013, to impose a financial penalty of up to £5,000 on an employer found to have breached the claimant’s rights in a way that “has one or more aggravating features.” In late December, in response to a parliamentary question tabled by then shadow BIS minister Ian Murray (now the only Labour MP in Scotland), the then employment relations minister Jo Swinson had confirmed that no section 16 penalties had been imposed since the power came into force on 6 April 2014. And I argued that the most likely explanation for this lack of section 16 penalties is that

the hefty, upfront tribunal fees introduced by the Ministry of Injustice in July 2013 have eradicated exactly the kind of tribunal claim that [former business secretary] Vince Cable [and former BIS employment relations ministers] Ed Davey and Norman Lamb evidently had in mind when they came up with the section 16 penalty regime: a relatively low value claim (because the claimant is or was low paid) against a deliberately exploitative employer. For why would a vulnerable, low-paid worker subjected to ‘wage theft’ of a few hundred pounds gamble up to £390 on trying to extract the unpaid wages or holiday pay from their rogue (former) employer?

In response, at least one #ukemplaw luminary suggested that I was being a bit premature, given that employment judges had had the power for only nine months. And, while I countered that we could have expected at least some penalties to have been imposed, I had to concede that it would be “interesting to ask BIS the same question again in three or four months time.”

Well, five months have passed, and BIS has been asked the same question, this time by Caroline Lucas MP. BIS doesn’t seem to have an employment relations minister as such any more, but skills minister Nick Boles has now replied, confirming that the number of section 16 penalties imposed to date is … just three. Of which two remain unpaid.

As when I wrote on this issue in January, it is theoretically possible that this is simply a good news story: the threat of a financial penalty has incentivised employers to avoid breaching their workers’ rights in a way that has “aggravating features”. But it seems much more likely that my original theory holds true. That, thanks to fees, employment judges are no longer seeing many of the kind of ‘rogue employer case’ at which the section 16 provisions were aimed.

And – just for once – I am not alone. In April, Nic Elliott of respondent law firm Actons blogged about having recently spent four days in the tribunal, successfully defending his employer client against a claim with “little merit from the outset, but just enough to warrant four days with an employment judge”:

This was a claim my client thought ‘misconceived’. Perhaps the type of unmeritorious claim the [then] government was trying to weed out with the introduction of tribunal fees. However, the claimant was a high earner and could easily afford £1,200 in the hope he would make a return on this investment. It seems those employees with entirely valid claims, with little means to pursue them, may not be so lucky.

Nic concludes that “the fees regime introduced [in July 2013] really isn’t hitting the mark and preventing claims with little merit entering the system. There’s also a significant risk that those with genuine claims are being prevented access to justice because they can’t pay their way”. And, last month, top employment barrister (and founder of this blog) Sean Jones QC suggested to the CBI and others that “perversely, it is fast track, high merit, low value claims that fees have seen off”.

If we are right, this would explain why – contrary to what we could expect if fees were simply deterring ‘vexatious’ and unmeritorious claims – the overall success rate of ET claims has fallen significantly since July 2013. In short, like the protagonist in Depeche Mode’s classic “Wrong” – who answered “the wrong questions with the wrong replies” – Coalition ministers appear to have “reached the wrong ends, by the wrong means, with the wrong method and the wrong technique”.

However, if the current ET fees regime was, indeed, the “wrong plan, in the wrong hands”, then at least the new crop of ministers has an opportunity to make amends. The government’s recent reply to another parliamentary question by Caroline Lucas suggests ministers are still committed to carrying out the long-promised review. All we need now is a date.

The penalty spot miss that should go to the Court of Appeal

Customarily, the dawn of a new year is a time for looking forward, to what the future might bring. But, employment law-wise, 2015 looks so bleak that I’m going to kick the Hard Labour year off by looking back, to the Enterprise & Regulatory Reform Act 2013 and its creation of a power for employment judges to impose a financial penalty of up to £5,000 on employers found to have breached a worker’s rights in a way that “has one or more aggravating features.”

First mooted in the January 2011 BIS consultation on ‘resolving workplace disputes’, the penalty regime was presented as a key plank of the Enterprise & Regulatory Reform Bill unveiled by Vince Cable in May 2012. However, unloved both by the employer bodies and by the trade unions, the then clause 13 was the subject of some debate at the Bill’s Commons Committee Stage in July, and also at Report Stage in October, by which time it had become clause 14 (it would go on to become section 16 of the 2013 Act).

During the latter debate, Jo Swinson, who had replaced fellow Liberal Democrat Norman Lamb as BIS employment relations minister just a few weeks previously, told MPs:

“When we first proposed the introduction of [the financial penalty regime], we had thought to make the imposition of the penalty automatic when there was a finding in favour of the claimant, but we listened to the concerns expressed by business during the resolving workplace disputes consultation last year and revised our proposals to give the tribunal discretion to decide when a penalty was appropriate. Good employers—those who try to do right by their employees—have nothing to fear, regardless of their size. A genuine mistake will not be grounds for the imposition of a penalty. However, those businesses which the tribunal considers have acted deliberately or maliciously will rightly, I believe, face the prospect of a financial penalty. They will no longer be able to gain a competitive advantage over businesses that abide by their obligations.

This is not some kind of revenue-raising scheme; it is about ensuring that the right incentive structure is in place by creating a further penalty for businesses that deliberately flout the law. That will incentivise the right kind of behaviour. That will be fairer on the vast majority of businesses that are good employers and that should not lose out to those employers that gain some kind of advantage by treating their employees badly.

Although they make up a small portion, there are clearly too many employers who do not comply properly with their obligations. I think that it is quite right that we send a clear signal and make it clear that those employers can expect to face a bigger consequence at a tribunal than those well-intentioned employers who try to do the right thing but fall foul of the law because of an error—after all, we are all human.”

We are indeed – even those of us who are government ministers prone to make grandiose claims for their draft legislation. And it is fortunate for Ms Swinson and her Coalition colleagues in HM Treasury that section 16 of the 2013 Act was not ‘some kind of revenue-raising scheme’. Because, in reply to a written question by shadow BIS minister Ian Murray, Ms Swinson has just revealed that the number of financial penalties imposed since the regime came into force on 6 April 2014 is … none.

Yep, nine months, and not a single section 16 penalty. Nada. Zip. Rien.

Which could be good news, of course. Maybe the financial penalty regime has so incentivised the right kind of behaviour that there are no longer any businesses deliberately flouting the law to gain some kind of advantage over their law-abiding competitors. Rejoice!

However, I doubt even Ms Swinson would claim that is what has happened. I imagine the Minister might try to suggest that the fault lies with the employment judiciary, for failing to take up the tool so cleverly crafted for them by Vince Cable, Ed Davey and Norman Lamb. But it seems unlikely that a judiciary so often criticised (mostly by employer bodies) for an alleged lack of consistency would have acted quite so … well, consistently.

A far more likely explanation, it seems to me, is that the hefty, upfront tribunal fees introduced by the Ministry of Injustice in July 2013 have eradicated exactly the kind of tribunal claim that Cable, Davey and Lamb evidently had in mind when they came up with the section 16 penalty regime: a relatively low value claim (because the claimant is or was low paid) against a deliberately exploitative employer. For why would a vulnerable, low paid worker subjected to ‘wage theft’ of a few hundred pounds gamble up to£390 on trying to extract the unpaid wages or holiday pay from their rogue (former) employer?

Which means that the deliberately exploitative employers supposedly targeted by section 16 of the 2013 Act are able to break the law with near impunity. And that is something that really ought to be of concern not just to Dr Cable and Ms Swinson, but to the Court of Appeal when it hears UNISON’s appeal against the High Court’s dismissal of its two applications for judicial review of the fees regime.

(As an afterthought, it is worth noting that, during those two Commons debates in July and October 2012, Norman Lamb and then Jo Swinson firmly resisted amendments tabled by shadow BIS ministers that would have reworked the unloved s16 penalty regime to focus it on those employers who fail to pay a tribunal award. Having belatedly seen the light on that long-standing issue, Ms Swinson has sought to make amends by including provisions to establish a parallel penalty regime to exactly that effect in the Small Business, Enterprise & Employment Bill, currently in the House of Lords.)


Disputed penalty: should ETs have the power to impose financial penalties on employers?

Well, it had to happen eventually. After many years as the Tweedledum and Tweedledee of the employment policy (under)world – virtually indistinguishable in our views on any number of policy initiatives and legal reforms – Michael Reed, of the Free Representation Unit, and I have had a policy disagreement. And not just a slight difference of opinion, but a full-blown parting of the ways. To quote Michael – something I will be doing a lot less of from now on, obviously – we are “complete opposites” in our view.

What? Complete opposites, after all those years of “I agree with Michael” and “I agree with Richard” in meetings with BIS and Ministry of Justice officials? Has one of us lost our marbles? Or taken the Beecroft shilling?

Our story

All was hunky dory with Michael and me, until last week. But then Acas went and tweeted a news article of theirs about the coming into force, on 6 April, of the new power for employment tribunals to order any employer found to have made a breach of the rules with ‘aggravating features’ – whatever that means – to pay a financial penalty of up to £5,000 (section 16 of the Enterprise & Regulatory Reform Act 2013). And, somewhat unthinkingly, I retweeted it. I’m like that, you see. Impulsive.

Almost immediately, my universe began to crumble. “Leaving aside the implementation, do you think financial penalties are a good idea”, demanded a tweet from Michael.

Through a veil of tears, I tweeted my pathetic reply: “Yes, though I doubt ETs will ever have the information they need to use the power effectively. I can see it being used very little”. Because, whilst I would have much preferred to see the power more narrowly framed and targeted at, say, repeat offenders and those who have failed to pay a previous award, I do think it a good thing that life might become a little harder (or, at least, a little more expensive) for rogue employers. And, let’s face it, since 2010 rogue employers have done rather well out of all the Coalition’s other reforms of employment law and the ET system.

And then he – Michael – said it: “Interesting. We’re complete opposites. I think it’s wrong in principle. And I think it’ll be used reasonably often”. Yep, you don’t get much more completely opposite than that. But enough from me. Let’s hear what Michael has to say.

Michael says:

First of all, Tweedledum and Tweedledee? I protest! We are the Butch and Sundance of employment law. Or, at the very least, the Laurel and Hardy.

But, through a veil of tears, I turn to the substance of our tiff. Should employment tribunals impose financial penalties on employers, separately to awarding compensation to employees? I start from the position that there’s a name for imposing a financial punishment on people because they’ve acted unlawfully. That’s called a fine.

And a fine is properly the province of the criminal justice system. Basically, I don’t think that the State should be extracting money from people in this way without the full paraphernalia of the criminal law — including proper legal aid and proving things beyond reasonable doubt. I realise that, in all sorts of areas, we’ve slid into this sort of civil penalty charge, but I disapprove of all that too.

The State, whatever its protests, is a 1000-tonne gorilla. It has immense resources and a monopoly on the use of force as a means of coercion. It has to be self-denying and self-limiting — willing to shackle itself to the rule of law. Or we’ll all end up in unpleasantness.

Now, of course, introducing employer penalties does not inevitably lead to a totalitarian dystopia. It’s not even on the top 10 things this government has done which might lead to a totalitarian dystopia.

In fact, I think it’s very unlikely to have any real negative impact in the wider sense at all. But the nature of this sort of principle is that it’s important enough that you follow it, even when pragmatically the danger seems non-existent.

Even if all of this is wrong, I just think the employment tribunal is the wrong place to be dealing with this sort of fine. A criminal sanction should be applied consistently. Which is why the police and CPS have guidelines about when to take cases to court. Shackling the sanction to unconnected civil litigation means that who gets fined will depend on who gets sued (and who settles). It’s built-in inconsistency.

Furthermore, shoehorning a criminal sanction into a civil trial isn’t likely to do either of them any favours. Tribunals have challenges enough dealing with all the issues of party vs party litigation, without bolting on a bit of party vs State for them to address as well. Does no one think of the poor judges?

Finally (and this might not be a matter of principle at all), I simply can’t stomach a government that imposes a draconian cap on the compensation that claimants can receive, while attempting to trouser a wedge of cash for itself.

The average UK salary is £27,000 (and therefore so is the unfair dismissal cap for the average employee). The maximum penalty is £5,000. The government position is that the cap is needed so people don’t have false perceptions of their likely award. This cannot be reconciled with trying to grab up to 18% of the value of the maximum award for the State. The government’s position on this is contemptible. Sufficiently so that my emotions run high and I couldn’t bring myself to support the financial penalty, even if I could put aside my virtuous principles.

To which Richard says:

Yes but no but yes but … darn it, you’ve convinced me. The section 16 penalties are wrong in principle, and employment tribunals the wrong arena. Can we be friends again?

However, I still think the power to impose a penalty will be rarely used, not least because the often low-value claims brought against the kind of exploitative employer at which the power is supposedly aimed, are precisely those claims that have been barred from the tribunal system by the outrageous fees introduced last July. Vulnerable workers subjected to ‘wage theft’ of a few hundred pounds are simply not going to gamble £390 on trying to extract the unpaid wages from a rogue employer.

Even where such claims do make it as far as the tribunal, I suspect the average employment judge will be no more minded to impose a penalty than they have been to date to impose a costs order. And, whilst the number of costs orders – and especially orders against claimants – has crept up in recent years, it is still very small.

Time will tell. As would the quarterly and annual tribunal statistics, were the good people at HMCTS to take the necessary steps to record use of the power. Unfortunately, it seems they have no plans to do so.

To which Michael says:

Darn it, I was hoping you’d turn me around. Then I could urge tribunals to award large penalties against my opponents with a merry heart (although one of the many minor issues with the scheme will be what, if anything, claimants and their lawyers should say about all this). But at least we’re friends again.

I’m much less dogmatic on the issue of how much the new power will be used. It’s really about our gut feelings on how judges will react. And, as anyone will tell you, judges are an unpredictable lot. But, from a judicial perspective, I see the financial penalties as looking more like an uplift for breach of the Acas Code than a costs order.

I think judges regularly get a sense of whether they think an employer is a proper wrong’un who has acted maliciously or just a bit of a ninny who made a mess of things. And the principled argument against the whole idea we’ve discussed above don’t bear on sitting judges. They may think the law shouldn’t be there but, since it is, they’ll have to consider it.

My guess is that, if they peg someone as a wrong’un and can point to something to describe as an aggravating feature, they’ll be willing to impose a financial penalty. In part, I think this is because it won’t require a lot of additional reasoning or fact finding for the tribunal. One of the reasons that costs are rarely awarded is that they often require everyone to embark on a new set of evidence and submissions right at the end of the case, when everyone just wants to go home (or already has).

In the case of financial penalties, things are much easier. All the evidence will be in as part of the liability trial. If, at the end of submissions, a judge thinks a penalty might be appropriate they can flag it with the parties and hear what they have to say. Which probably won’t be much, beyond the respondent arguing that, even if they lose, they haven’t gone as far as aggravated breach. Then the tribunal can cover it in a paragraph or two in their judgment. No muss, no fuss.

Of course, you’re right that the reduced number of claims will hold down the number of these penalties (which, come to think of it, is yet another reason why the tribunal is the wrong venue for this sort of thing). But I think, proportionally, we’ll see a reasonable number of these awards.

As you say, time will tell (particularly if we get the stats). Shall we schedule a follow-up post for about a year’s time?

One of us can crow and the other can explain why they weren’t really as wrong as it looks.

Please feel free to endanger the conscious recoupling of Michael and me by taking sides – leave a comment.